King: Economics

Chapter 27

Instructions

Answer the following questions and then press 'Submit' to get your score.

Question 1

Suppose Countries A and B use only labour as an input and produce only cloth and wheat. In A, a worker in a day could produce 2 units of cloth or 4 units of wheat. In B, a worker in a day could produce 3 units of cloth or 9 units of wheat. At present the countries do not trade. Which of the following statements is false?

a) Country A has a comparative advantage in cloth.

b) Country B has a comparative advantage in wheat.

c) Country A has an absolute advantage in cloth.

d) Country B has an absolute advantage in wheat.

Question 2

Return to the countries in question 1. Suppose trade opens up. Which of the following statements is true?

a) Country A will export cloth to B, and import wheat from B, and each country will be able to consume more of both products than before.

b) Country A will export wheat to B, and import cloth from B, and each country will be able to consume more of both products than before.

c) Country A will export cloth to B, and import wheat from B, but only country B will gain from the trade.

d) Country A will export wheat to B, and import cloth from B, but only country B will gain from the trade.

Question 3

Suppose Countries C and D use only labour as an input and produce only tables and tents. In A, a worker in a week could produce 4 tables or 2 tents. In B, a worker in a week could produce 6 tables. Initially the countries do not trade, and then trade opens up. Under which circumstances will country C export tables?

a) Under no circumstances.

b) If a worker in country D could produce fewer than 3 tents a week.

c) If a worker in country D could produce 3 tents a week.

d) If a worker in country D could produce more than 3 tents a week.

Question 4

Suppose two countries E and F use many inputs. Country E exports tractors and imports televisions. Assuming there are no economies of scale, which of the following statements is true?

a) If the countries did not trade, then E would have a lower opportunity cost for tractors.

b) Even though there is trade, E has a lower opportunity cost for tractors.

c) E is sure to produce no televisions while F is sure to produce no tractors.

d) Neither country can consume at a point outside its production possibility frontier.

Question 5

Which of the following statements is false?

a) Two countries may benefit from trade, even if their production possibility frontiers have identical shapes, if preferences differ in the two countries.

b) Two countries may benefit from trade, even if their production possibility frontiers have identical shapes, if industries have substantial economies of scale.

c) When two countries benefit from the opening up of trade, all citizens in each country will benefit.

d) Differences in the degree of human capital offer one reason why two countries may have production possibility frontiers that differ in shape.

Question 6

Suppose a small country imposes a tariff on a good. Which of the following statements is false?

a) Consumer surplus from the good will decrease.

b) Producer surplus from the good will decrease.

c) The quantity imported will fall.

d) The deadweight loss will be less than the total fall in surplus.

Question 7

Suppose a large country imposes a tariff on a good. Which of the following statements is false?

a) The total consumer plus producer surplus decreases.

b) The price for consumers rises from the pre-tariff situation by the amount of the tariff.

c) If other countries do not retaliate, the country may be better off.

d) If other countries do not retaliate, the country may be worse off.

Question 8

Which of the following arguments for trade barriers offers potential benefits to consumers?

a) To soften the fall of declining industries.

b) To protect industries from competition from low wage countries.

c) To protect industries from dumping.

d) To nurture infant industries by protecting them from cheaper imports.

Question 9

Two large countries currently impose tariffs against each other. Each country would be better off with free trade. Which of the following statements are true?

1. Each country might think 'if the other country maintains its tariff, we will be better off maintaining our tariff.'2. Each country may think 'if the other country unilaterally abolishes its tariff, we may be better off maintaining our tariff.

a) Both 1 and 2

b) 1 only

c) 2 only

d) Neither 1 nor 2

Question 10

Which of the following statements is false?

a) Over 150 countries belong to the World Trade Organisation.

b) If a country joins a customs union, it may do less trade with non-members than it did previously.

c) A single market requires the removal of barriers to the movement of labour.

d) Members of a free trade area agree to have uniform tariffs on imports from non-members.